Arbitration Agreements Front and Center: United States Supreme Court Set to Resolve Ongoing Row over Legality of Class Action Waivers

As readers of this blog will note, we have previously noted a split among the U.S. Circuit Courts on the issue of whether class action waivers in arbitration agreements are legal or not: the Second, Fifth (see here) and Eighth Circuits have held that such waivers are legal (relying upon the Supreme Court’s holding in AT&T Mobility LLC v. Concepcion, among others), while others (including, most recently, the Ninth Circuit in Morris v. Ernst & Young, LLP), accepting the arguments of, notably, the National Labor Relations Board, have held that such waivers are not legal.  (In an opinion that is logically consistent with those of the other circuits that have held such waivers illegal, the Ninth Circuit in Morris held that Section 7 of the National Labor Relations Act (“NLRA”) and its promise of protected “collective action” renders class action waivers in arbitration unlawful—despite the lack of required “clear congressional intent” for the NLRA to trump the Federal Arbitration Act, as the Supreme Court discussed in AT&T Mobility and also in American Express Company v.Italian Colors Restaurant.)

Today, the Supreme Court granted a petition to consider, in a consolidated appeal, which Circuit’s position will prevail.

For employers, this decision to grant review, though not surprising, is absolutely critical.  If the Supreme Court agrees with the NLRB and invalidates such waivers, this would open up a window for class action litigation or class arbitration that had seemingly closed with AT&T Mobility.  This would clearly be a discouraging turn of events for employers.  Yet the current state of affairs is nearly as bad because of the degree of uncertainty regarding class action waivers: are they enforceable or unenforceable?  To say this lack of certainty makes managing employees and employment litigation difficult would be an understatement.

What comes next?  As Yogi Berra once said, “It’s tough to make predictions, especially about the future.”  This past election cycle has proven Mr. Berra correct. What we can say is that the current vacancy on the Supreme Court (and when it is filled, and who fills it) looms large for this decision.  Stay tuned.

Monte Grix

NLRA Does Not Prevent Class Action Waivers But Overbroad Agreements Will Not Be Enforced

The Fifth Circuit Court of Appeals refused to enforce critical portions of the NLRB’s decision in D.R. Horton, Inc., including its decision that class action waivers in arbitration agreements violated the National Labor Relations Act.  The Fifth Circuit joins the Second and Ninth Circuits and numerous federal district courts in finding that federal labor law does not prevent employers from imposing class action waivers.  However, employers should consider revising their arbitration agreements based on the Fifth Circuit’s holding that the specific wording used by D.R. Horton could be misinterpreted by employees to prevent them from filing NLRB charges. Continue reading

The Future Of Labor Unions In The U.S.

Labor unions in the United States have been struggling with declining membership for decades.  After reaching an all-time high of approximately 35% unionization of private sector employees in the 1950s, labor unions represent just 6.6% of private sector employees according to the National Labor Relations Board.   Unions are very aware of this decline and have tried many things to arrest it, with limited success.  Apparently recognizing that focusing their efforts on organizing and other traditional labor activities would likely result in a continued decline in membership, unions have sought alternate means to expand their membership or influence in recent years.

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Ninth Circuit Enforces Arbitration Class Waiver

Since the 2011 United States Supreme Court decision in AT&T Mobility v. Concepcion, appellate courts have assessed whether arbitration clauses with class action waivers are enforceable.  Concepcion said yes and most courts have followed that precedent.  The Ninth Circuit in Richards v. Ernst & Young on August 21, 2013 also followed the majority of the case law and held that Ernst & Young’s arbitration agreement, which provided for a waiver of class action claims, was enforceable.  The Ninth Circuit held that the individual claims must be arbitrated and they vacated the district court’s order certifying a class of plaintiffs with Richards as the class representative.

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Senate Confirms 5 Members Of NLRB, Leaving It With A Quorum

For the first time since January 2012, the National Labor Relations Board (NLRB) unquestionably has a quorum to issue rulings.  This comes on the heels of the U.S. Senate’s votes yesterday to confirm a 5 members of the Board, three of whom are labor-friendly and two of whom have a management background.  They are: Mark Gaston Pearce, the current Board Chairman whose term was set to expire in August; Kent Hirozawa, Pearce’s chief counsel; Nancy Schiffer, a retired associate general counsel at the AFL-CIO; and Philip A. Miscimarra and Harry I. Johnson III, both partners at large law firms.  The votes for the Democratic nominees were along party lines.

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NLRB Turns Its Focus To Employer E-Mail Policies

According to the National Labor Relations Board, employers are free to have policies limiting e-mail usage for business purposes only.  They are just not free to enforce it.

At a Weyerhauser plant in Washington state, e-mail use is limited for all employees to “business purposes only,” with limited exceptions with managerial consent.  The National Labor Relations Board ruled that Weyerhauser’s policy was “facially neutral,” meaning that it was lawful because it did not single out e-mails based on union content.

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The NLRB Ramps Up Its Activity Level

Several weeks ago, the NLRB filed a petition for certiorari in the U.S. Supreme Court asking it to reverse the decision of the U.S. Court of Appeals for the D.C. Circuit in Noel Canning v. NLRB.  In Noel Canning, the Supreme Court found that President Obama’s recess appointments to the NLRB were unconstitutional and that since January 2012, the NLRB has lacked a quorum.  You can read our post on it here.

As that petition awaits the Supreme Court, another appeals court, the Third Circuit, threw its hat into the ring, issuing a 2-1 decision that accords with Noel Canning.  Now the only two appellate courts to have considered the issue have found that the NLRB is not properly constituted.  If the Supreme Court declines cert in Noel Canning or affirms the decision, it will mean that all decisions from the NLRB since January 2012 are invalid.  That would include groundbreaking decisions the NLRB has reached on social media, arbitration agreements, investigations and other issues affecting both non-union and union employers.

In the meantime, the President has nominated new members to the NLRB.  Traditionally, the NLRB has been constituted by five members, three from the President’s party and two from the other party.  The President nominated three Democrats (the current Chairman and the two purported recess appointees) and two Republicans.  The Senate has taken those nominations under consideration and they are expected to be voted on in committee next week.

The NLRB has also doubled down on its much maligned decision in Banner Health Systems that purported to limit an employer’s ability to require confidentiality in internal investigations of the workplace.  While that decision is being reviewed by an appellate court, the NLRB issued an Advice Memo in which it found that an employer’s policy requiring confidentiality in all investigations was improper.  The NLRB suggested that the employer should change its policy to clarify that it can only require confidentiality “in some circumstances.”

And if that was not enough, a decision is expected any day from the Fifth Circuit in its review of the NLRB’s controversial decision in D.R. Horton.  In that case, the NLRB found that class action waivers in mandatory arbitration agreements violated Section 7 of the Act.  Although there is no consensus, many employment lawyers expect the Fifth Circuit to vacate the NLRB’s decision.

- Dan Handman

NLRB Issues More Social Media Decisions

Just when you thought it was safe to go back in the water, the NLRB issued two new decisions in social media cases, one ordering the reinstatement of a tour bus driver who complained about his employer on a facebook page and the other striking down a hospital’s social media policy.  This continues the Board’s frontal assault on social media in the workplace, which we blogged about just a few days ago (click on our social media tab for more decisions in this area).

In the first case, the Board found that Fred Pflantzer, a tour bus driver, engaged in protected activity when he complained about the lack of health care insurance, minimal sick and vacation days, unsafe buses, and payroll practices with On Board Tours, his former employer.  In particular, he applauded City Sights, another tour operator where he worked before On Board, calling it a “worker’s paradise” compared to On Board.  Pflantzer applauded the work of a labor union in creating a positive workplace at City Lights and informed the readers of the benefits of having a labor union.  On Board  admitted that this post — which it considered libelous — was a motivating factor in its decision to terminate Pflantzer and the Board found that such activity was protected under Section 7 of the National Labor Relations Act, even though there was no evidence that any other On Board employees had access to the facebook page, which was private.

In the second case, an administrative law judge for the NLRB found that the University of Pittsburgh Medical Center had an overly broad social media policy and ordered parts of it to be removed.  In particular, UPMC’s policy prohibited employees from:

  • soliciting employees “to support any group or organization”
  • using e-mail “in a way that may be disruptive, offensive to others, or harmful to morale”
  • limiting use of e-mail and social media to “authorized activities.”

The ALJ found that while those policies were not necessarily targeted at prohibiting protected activities, they were ambiguous enough so that they would “chill” employees from engaging in protected, concerted activities.  For that reason, they were overbroad and must be removed.

While it remains very possible that a court will reverse these decisions, it remains of paramount importance for employers to: (1) review their social media policies to ensure that they are not overbroad; and (2) consult with counsel any time they are disciplining or terminating an employee based on his online activities.  We expect many more social media decisions to follow in the coming months and we will keep you posted on them.

- Dan Handman


NLRB Lacks Quorum To Act

Take a look at our recent e-Alert on the decision of the U.S. Court of Appeals for the D.C. Circuit, which found that President Obama’s recess appointments to the National Labor Relations Board were imrpoper and, as a result, the Board did not have a quorum to issue any of the decisions it issued since the appointments were made over a year ago.  This stunning decision potentially invalidates all of the controversial decisions reached by the Board in the past year, many of which we have already blogged about (here, here, here, herehere, here, and here).

- Dan Handman  (Los Angeles)

NLRB Judge Broadens Ruling Prohibiting Class Action Waivers

An NLRB Administrative Law Judge has issued a decision that significantly broadens the Board’s earlier decision that an arbitration agreement prohibiting class actions violates Section 7 of the Act.  Were this decision to be approved by the full Board, it could have serious implications for both non-union and union employers. 

Earlier this year, in D.R. Horton, the Board found that arbitration provisions which prohibit employees from bringing class actions can violate Section 7 of the National Labor Relations Act.  That section of the Act protects the rights of employees engage in so-called concerted, protected activities.  The D.R. Horton decision was notable because, among other things, it appeared to contradict a recent decision from the U.S. Supreme Court in AT&T Mobility , LLC v. Concepcion, which found a class action waiver in an arbitration agreement to be lawful.

This ALJ decision was significant because of the nature of the arbitration policy at issue.  Unlike D.R. Horton,  employees were not required to sign arbitration agreements, but were allowed to opt out of the process.  As a practical matter, therefore, they were not forced to waive their right to bring class action claims. 

Yet, the ALJ found that the provision was “an illusion” because the process was “convoluted” and because employees would be unable to identify others who had also opted out.  Because of that, he found that the agreement still required employees to forfeit their right to engage in concerted, protected activity and ordered the company to remove the prohibition against class or collective actions and to notify all employees of the change. He also ordered the employer to notify all arbitral or judicial tribunals where it has pursued enforcement of the clause that it desires to withdraw the request.

This decision will almost certainly be reviewed by the full Board and potentially by one of the U.S. Courts of Appeal.  The D.R. Horton case is presently being reviewed by the U.S. Court of Appeals for the Fifth Circuit.  At least one California court has already rejected arguments that the D.R. Horton decision invalidates otherwise enforceable class action waivers in arbitration agreements.

- Dan Handman (Los Angeles)